Rather than make it three in a row, the RBA board opted to leave interest rates on hold at their record low of 1 per cent, in a bid to gauge the effectiveness of its previous cuts, as well as on the back of some encouraging economic data released over the past week.
However, the board did state that low interest rates are here to stay for the foreseeable future. The statement accompanying the decision concluded that “It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target”.
The property market slump has shown signs of bottoming out, with auction clearance rates spiking in recent months and prices actually edging upwards in five of Australia’s eight capital cities in June. That included Sydney and Melbourne, which had seen the biggest falls in house prices since peaking in 2017.
New listings of properties for sale have also hit “their lowest level since 2010” — down by 22 per cent over the past year — according to CoreLogic analyst Cameron Kusher, with this supply-side constraint helping to put a floor under prices.
Also in June, retail turnover posted a 0.4 of a percentage point rise, well up on the 0.1 of a percentage point increase in May, when the federal election was held.
Inflation, too, has risen from its recent lows, surging to 1.6 per cent (up from 1.3 per cent). However, both inflation and retain turnover remain below their ideal levels.
Pause this month ‘widely expected’
CoreLogic’s head of research, Tim Lawless, said the RBA’s decision to leave rates on hold this month had been “widely expected”.
“The pause in the cutting cycle will give the RBA time to assess the effects of earlier rate cuts on the economy and consumer spending; however, there is a strong likelihood of at least one more cut later this year,” he said.
Mr Lawless said the positive signs for Australia’s housing market are not entirely attributable to recent rate cuts, given the changes to lending requirements as well as tax cuts and post-election rebound in confidence.
“With mortgage rates set to remain low for an extended period of time, as flagged by RBA governor Lowe in a speech last month, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery,” he said.
“However, with credit policies remaining tight and economic uncertainty still elevated, we aren’t expecting a material acceleration in housing activity or housing values.”
All but two of the 46 economists and experts on comparison site Finder’s RBA Cash Rate Survey panel had predicted the hold.